PETALING JAYA: The total cost of taking over the highways in Malaysia may breach RM100bil, with the equity portion of the concessionaires’ companies forming a larger amount than the RM52bil worth of bonds owed by the highway companies.With 23 companies having issued RM52.83bil worth of bonds and sukuk as of May last year, analysts said the equity portion of any takeover is estimated to be between RM60bil and RM80bil, which would push the total cost to RM130bil.
They said the total cost of the takeover of highways would depend on which method of valuation is used in the acquisitions. The discounted cash flow method or the enterprise value to earnings before interest, tax, depreciation and amortisation could feature, like it did when Permodalan Nasional Bhd bought Silk Highway.Cost could, however, fall dramatically should the government flex its muscle in pushing through any deal with national interests in mind with the concession companies.“While the solution and content of the nationalisation exercise may be net positive, the term expropriation sends shivers down investors’ spine,” said an analyst.
The government announced on Saturday it had begun talks with Gamuda Bhd to buy the concession agreements of four highways as part of its promise to abolish tolls in stages.The Prime Minister’s Office said the four highways are Lebuhraya Damansara Puchong (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Lebuhraya Shah Alam (Kesas) and the Smart Tunnel.It is expected that negotiations with other companies are underway as KPMG is acting on behalf of the Malaysian Highway Authority. It was reported that Ernst & Young is working on a study on the tolled highways.
A key component of the Pakatan Harapan’s election manifesto was the promise of acquiring highway concessions and abolish tolls in stages, in accordance to the terms of the concession agreement.“This is to alleviate the high cost of living for highway users. Upon the successful takeover, the government intends to abolish the existing toll mechanism,” it said in a statement.Toll charges would, however, be replaced with a congestion charge that would charge the existing toll rate for six hours a day or during the peak period for travel.Drivers will pay no charge if they travel between 11pm and 5am or 30% less than the current toll rate during any of the other hours.The government said revenue collected would be channelled towards the operation and maintenance of the highways and the repayment of borrowings.
To give a gauge as to how much it costs to maintain a highway, PLUS Malaysia Bhd said it spent RM1bil in 2016 to maintain its network of highways in the country. The older the highways, the higher the maintenance cost.After paying for upkeep and debt of those highways, the government said any surplus would go into a public transportation fund to improve the quality of public transport.Talk of a takeover of the concession agreements have rattled investors in the capital markets and shares of those highway operators in the past and it was reported that the expropriation clause in the concession agreements it has with the highway operators could be used in the takeover of the toll roads.In May last year, CGSCIMB noted the expropriation clause, which is of national interest, was inserted in all highway concession agreements. All the government needed to do was to give a three-month notice to the operators.
Although the previous Barisan Nasional government had estimated in 2010 that it would cost RM338bil to takeover the highways, the cost estimated in using the expropriation method would see the government incur an expenditure of RM50bil.The report said the compensation formula that could be used in taking over the highways would use the value of construction works, plus capitalised interest costs, and interest of 12% to any loan extended by the shareholders of the concession, net interest or dividends which have already been paid.CGSCIMB believed then that the takeover cost would take into account the deduction of loans to be assumed by the government, and grants already given by the government.
Analysts are concerned that the news of using the expropriation method in buying over the highways will spook the markets, especially companies with highway concessions.The Bursa Malaysia Construction Index has been rallying since the start of the year on optimism the resumption of mega projects such as the East Coast Rail Link and construction jobs in general would lift the performance of such companies.